Researchers from the Nanyang Technological University and the RISE Research Institutes of Sweden have published a new paper which describes a new economic model for analyzing enterprise IT service downtime cost. The paper was published in Operations Management Research.
In this paper we present an economic model for analyzing enterprise IT service downtime cost, first on a standalone basis and then in a supply chain setting. With a baseline probability model of Poisson arrival frequency with random downtime duration, we analyze optimal production of a firm’s investments in reducing frequency and duration of downtime, and corresponding premiums for insuring against downtime cost. We also present a model for the spillover effect of downtime for interconnected firms in a supply chain, and discuss how third-party insurance coverage can help enterprises to internalize the externalities of spillover effects on the supply chain.